Bryan Ellis Chief Revenue Officer | realtors.com
A recent report from John Burns Research & Consulting reveals that renting a single-family home remains more affordable than buying in the top 20 rental markets across the United States. On average, purchasing a starter home costs $1,091 more per month than renting an equivalent property. This gap slightly decreases to $1,067 when considering other types of properties, according to data from the Realtor.com economic research team.
Danielle Nguyen, Vice President of Research at John Burns, states, "No surprise here, it’s still more expensive monthly to buy a single-family home than it is to rent one." The disparity between renting and owning has decreased slightly since last year but is still significantly higher than the historical national average of $233.
The study categorizes starter homes as those priced at 80% or less of an area's median sales price. Although renters save on monthly expenses in these markets, they miss out on building equity in their homes—a key factor in increasing wealth over time. A study by the Aspen Institute found that homeowners had a median net worth of $400,000 in 2022 compared to just $10,400 for renters.
High home prices and mortgage rates nearing 7% contribute to this cost discrepancy. Mortgage rates would need to drop to 3.75% for the homeownership premium on single-family houses to align with the historical average of 14%.
Nguyen suggests potential buyers consider moving to areas where the ownership premium is lower or exploring new construction options. "Many homebuilders are finding success by offering mortgage rate buy-downs," she notes, which can help bridge the cost gap between buying and renting.
Among these markets, Austin, TX stands out with a purchase premium of 89%, resulting in monthly savings of $1,900 for renters compared to homeowners. In contrast, Cincinnati shows no significant difference between renting and owning costs.
The findings highlight various markets where renting remains economically advantageous compared to purchasing a starter home.
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